INSIGHT: Globalisation’s new advocates take on their opponents

SINGAPORE (ICIS news)--The doctrine of globalisation has never been more attractive to ?xml:namespace>Middle East petrochemical producers than it is now.

With economies on the mend after the worst downturn in a decade, producers in the gas-rich region, saddled with a ballooning surplus, are keen to make forays into markets where consumption is bullish.

The most attractive market currently is Asia, in particular China and India, where demand for products, including polyolefins, is forecast to grow at more than 10% in 2010. This is in sharp contrast to regions such as Europe and north America, where consumption has shrunk in the past year and where the most optimistic demand growth projections for next year are in low single digits.

Targeting growing markets is extremely important for Middle East players, with the region projected to step up its petrochemical output by 85% to 115m tonnes/year by 2015, increasing its share of global capacity to 16% from the current 11%.

Understandably, the issue that agitated delegates at the Gulf Petrochemicals and Chemicals Association (GPCA) forum held in Dubai last week was the shadow of protectionism.

On the podium and off, industry players from the Gulf Cooperation Council (GCC) region or those with major interests in it, warned of the dangers of erecting trade barriers between countries in a bid to protect the domestic industry.

The strongest initiative in combating protectionism came from the GPCA itself. "GPCA will strengthen coordination with GCC governments to ensure that exports of petrochemicals and chemicals from the Gulf region are not restricted by anti-dumping regulations and other trade restrictions," said the organisation’s secretary general, Abdulwahab Al-Sadoun.

In an effort to improve such coordination, the GPCA set up an advocacy committee headed by Ahmad Al-Ohali, CEO of Sipchem (Saudi International Petrochemical Company).

Sipchem, a major methanol and butanediol (BDO) producer, is one of the companies severely affected by the imposition of preliminary anti-dumping duties against butanediol, levied by the Chinese government in June this year. China is also looking into allegations of methanol dumping from Saudi Arabia, Malaysia, Indonesia and New Zealand.

Rumours were also rife early this year that the Chinese government may launch anti-dumping investigations against polyethylene imports from several countries, including some in the Middle East, but these died down due to China’s continuing reliance on imports.

SABIC (Saudi Basic Industries Corp) is also under pressure, facing as it does anti-dumping duties on polypropylene (PP) which India has imposed on Saudi Arabia (as also on Oman and Singapore).

Dumping, under international trade law, occurs when a manufacturer in one country exports a product to another country at a price which is either below the price it charges in its home market or below its cost of production.

The affected producers contend that the charges are baseless even as producers in India and China argue to the contrary.

““Competition in the market is healthy for everybody [for producers as well as consumers]. That’s why we are against trade barriers, we want competition. Competition is good for us because it makes us work harder and go for innovation and cost reduction programmes,” said SABIC CEO Mohamed Al Mady in an interview with ICIS news, reiterating the need to keep competition alive, whether it is between countries/regions or between companies in the same country or region.

The GPCA advocacy committee had been set up “to deal with issues related to trade such as anti-dumping duties which are facing our industry and to make sure they are handled in a proper way,” the SABIC chief said.

Similar sentiments were expressed by Saudi Arabia’s oil minister, Ali Al-Naimi, in his opening address to the GPCA forum.

With petrochemical capacity in Saudi Arabia set to surge to 80m tonnes/year in 2015 from 60m tonnes/year currently, there is a dire need for the country's producers to have free access to key export markets, Al-Naimi said.

Turkey, another major market for the GCC players, has also been looking at imposing anti-dumping duties against Saudi Arabia and Kuwait for monoethylene glycol (MEG).

"The current trend of governments resorting to trade barriers to protect domestic petrochemical industries is a matter of great concern to GCC producers, who are net exporters of petrochemical products and have huge capacities coming on stream," said Hamad Al-Terkait, vice-chairman of the GPCA and CEO of Equate Petrochemical.

A source close to an Indian PP producer argued that Saudi Arabia had no moral authority to rail against anti-dumping measures as the country had also set up high trade barriers against the import of polymers. Al-Mady, however, maintained that this was not the case and that GCC governments, including Saudi Arabia, had brought down their tariffs to levels compliant with WTO (World Trade Organisation) norms.

Alongside their efforts to make governments of the importing countries see their point of view, however, GCC players are also seeking to diversify their markets and develop more value-added products, thus reducing their exposure to large markets and commodity petrochemicals, where competition is more severe.

Whether the GCC players’ new growth strategies or negotiations with the importing countries succeed or not, for the moment, the turf war seems far from over, as more and more players seek a slice of the same pie.